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Saturday, April 30, 2011

Michelle Singletary at the Washington Post tells us about a bad class action coupon settlement, where, if the settlement is approved, the named plaintiffs get cash, the class lawyers get a lot of cash, and the harmed class members get nothing except the opportunity to do business with the same company that the plaintiffs say cheated them in the first place.

But not to worry. With the Supreme Court essentially eliminating consumer class actions earlier this week, we won't have awful class action settlements to kick around any more.

Friday, April 29, 2011

Justice Scalia wrote in Concepcion that "the times in which consumer contracts were anything other than adhesive are long past." In the Huffington Post, Public Citizen's David Arkush discusses the role of form contracts and the increasing power they give corporations to effectively write their own laws.

The federal government wants to curb childhood obesity by changing the way food is marketed to kids. As explained at the Consumerist, yesterday "an interagency working group consisting of folks from the Federal Trade Commission, Centers for Disease Control, Food and Drug Administration, and the Dept. of Agriculture, issued a set of 'proposed voluntary principles' it hopes the food industry will ultimately adopt in its marketing to the youth of America." Read the interagency group's principles and its request for comments. Then read the FTC's statement and press release on the initiative.

In a statement, Franken said that the Supreme Court's decision in Concepcion "essentially insulates companies from liability when they defraud a large number of customers of a relatively small amount of money," and that the law would allow consumers to continue to "play an important role in holding corporations accountable."

This morning, the U.S. Supreme Court dealt a crushing blow to American consumers and employees, ruling that companies can ban class actions in the fine print of contracts.

Now, whenever you sign a contract to get a cell phone, open a bank account or take a job, you may be giving up your right to hold companies accountable for fraud, discrimination or other illegal practices.

In a 5-4 vote, the justices held that corporations may use arbitration clauses to cut off consumers and employees’ right to band together through class actions to hold corporations accountable.

Class actions are an essential tool for justice in our society. Brown v. Board of Education was a class action. The fate of class actions should not be decided through the fine print of take-it-or-leave-it contracts.

The court’s decision today turns the Federal Arbitration Act of 1925 – a law that was intended to facilitate private arbitration between sophisticated companies – into a shield against corporate accountability.

Today's decision will make it harder for people with civil rights, labor, consumer and other kinds of claims that stem from corporate wrongdoing to join together to obtain their rightful compensation.

Justice Breyer asks the critical question: "What rational lawyer would have signed on to represent the Concepcions in litigation for the possibility of fees stemming from a $30.22 claim? Why is this kind of decision—weighing the pros and cons of all class proceedings alike—not California’s to make?"

Among many other things, the Dodd-Frank financial reform legislation required the Federal Reserve to regulate debit card fees -- the fees that banks charge merchants each time the merchant swipes a consumer's debit card. At the time of Dodd-Frank (and presumably today), those fees averaged 44 cents per swipe. In a draft rule, the Fed had proposed that the fee not exceed 12 cents per swipe (which, I'll note, is a huge difference from the unregulated fee). The banks could lose billions under the new rule and began lobbying hard against it. As the Wall Street Journal reported in March, the banks

have been aided in their effort by a collection of strange bedfellows who have raised concerns that the rule could have unintended consequences, harming consumers and even small banks, which are exempted from the rule. * * * The latest organization to join the coalition of opponents to the rule is the National Education Association, which said Monday that the rule should be studied further because, though well-intentioned, it could raise the cost of banking services."We really are concerned about some of the unintended consequences, particularly to lower-income educators," said Alfred Campos, a lobbyist for the education group. ... Those concerns follow similar entreaties from the National Association for the Advancement of Colored People and the U.S. Hispanic Chamber of Commerce, which urged further study of the rule to ensure it doesn't hurt poor and minority consumers by making banking services unaffordable.

So, the Fed postoned finalization of the rule, which was supposed to go into effect last Thursday. Meanwhile, Kathie Porter at Credit Slips posits some arguments against the claim that debit fee regulation is anti-consumer.

Saturday, April 23, 2011

When we talked in class this semester about how many credit card issuers send out "pre-screened" credit card applications, I mentioned how identity thieves famously "dumpster dive" for them after the consumer has thrown them away, fill them out, and send them in, using the identity thief's address. I pointed out that the Fair Credit Reporting Act requires the credit card issuers to allow consumers to opt out of the applications (15 U.S.C. § 1681b(e)), thus reducing the likelihood that an identity thief will steal their identity, but that some people simply tear the applications up, preventing the thieves from using them. Not so fast, my students replied. They pointed me to this story about how a consumer tore an application up, then taped it back together, and sent it in using a different address. Chase sent him the credit card anyway. Bob Sullivan has more.

So the opt-out seems like the better choice. Another problem that can be solved with a rule. The problem is that, as I've noted before, few consumers take advantage of opt-outs. While I'm not aware of any publicly-available statistics about how many have opted out of pre-screened solicitations (something the CFPB may want to look into), I doubt many have. If I'm right about that, I hope the CFPB or Congress can come up with a more effective way to protect consumers from the continuing identity theft epidemic than opt-outs few use.

Among the many parts of the Dodd-Frank Wall Street Reform and Consumer Protection Act, few have received as much mainstream attention as the creation of the Bureau of Consumer Financial Protection. As is often the case with legislation in recent years, though, some of the most vocalized critiques of the Bureau lack a foundation in Dodd-Frank as enacted or in the Bureau’s start-up efforts. This brief essay explores the nature of the Bureau and its promising possibilities for regulatory innovation that should transcend stale debates about regulatory overreach or command-and-control approaches. This commentary also reviews the unusual dialogue preceding Dodd-Frank about whether medical providers and other service businesses fall within the Bureau’s jurisdiction.

Professor Dan Schwarcz of Minnesota Law has posted an excellent empirical study of homeowner's insurance contract forms, finding important variations in coverage, most of which reduce the level of protection from the presumed industry standard. The paper offers a meticulous review of insurance policy contract forms from the top ten insurers in six different states, revealing a dizzying variety of provisions for events such as water damage, pollution damage, theft losses, and replacement cost standards.

Even obtaining the actual contract terms in use proved to be a significant challenge. In part III Professor Schwarcz recounts his exhaustive efforts to obtain copies of contract terms, from insurers themselves, from insurance agents, and from state regulators. Shockingly, state insurance departments who all profess to require contract forms to be submitted and approved, and to be publicly available, are systematically unable to produce insurance policy forms on request. The bottom line is that consumers cannot possibly shop for coverage terms because they cannot discover contract terms without purchasing a policy.

This is the sort of careful study of actual consumer financial markets and practices that the research division of the new CFPB ought to be doing, to inform consumer education and regulatory strategies going forward.